SunHealth Alliance hospitals are expected to approve the proposed merger with AmHS/Premier when they vote this week, yet the deal is creating ripples in the industry from other group purchasing organizations.
Most notably, VHA responded in a one-page statement attributed to its president and chief executive officer, C. Thomas Smith. Smith, who declined to be interviewed, acknowledged that his Irving, Texas-based alliance of 1,300 not-for-profit facilities also had discussed a merger with SunHealth, based in Charlotte, N.C.
The merger of American Healthcare Systems and Premier Health Alliance, which combined earlier this year, with SunHealth will create an alliance with nearly 1,700 hospitals and 315,000 licensed beds.
In the statement, Smith said that in spite of those talks SunHealth entered exclusive negotiations with AmHS/Premier "without prior notification." That comment seemed to indicate that VHA was in the dark about SunHealth's talks with the San Diego-based alliance.
However, the remark surprised SunHealth President Ben Latimer, who said, "I'm not sure what he means by that. I would hope we kept them informed. Tom (Smith) needs to explain that."
Also in the statement, Smith said that as local markets consolidate, "we anticipate that many current members of other alliances will align with our members and ultimately join VHA."
Smith may be hurrying that process along, though. He apparently was talking to some SunHealth hospitals already last week.
"Tom Smith feels obligated to discuss VHA with SunHealth members," said James Nathan, president and CEO of Lee Memorial Hospital in Fort Myers, Fla. "Many SunHealth members in Florida wanted to do the managed-care joint venture with VHA," he said, referring to Florida Health, an initiative to do managed-care contracting (Nov. 13, p. 4). "They wanted to wait to see what happens nationally (with AmHS-SunHealth) before making any decisions. Now, the Florida people have to decide what to do."
VHA started out the year as the nation's largest alliance of not-for-profit hospitals. However, since Robert O'Leary departed as vice chairman of Tenet Healthcare Corp. and took the reins of AmHS eight months ago, that alliance has surpassed VHA in size and purchasing strength. O'Leary, who was Smith's predecessor at VHA, has wheeled and dealed AmHS into an organization with $10 billion in annual purchases, once the SunHealth deal is approved.
Even so, some question whether size will translate into value. "Size and strength are not necessarily synonymous," said Lee Perlman, executive vice president of Greater New York Hospital Association Ventures. His group purchases $500 million annually for about 170 members, many of which are also members of AmHS/Premier.
Perlman and other observers said the newly forged alliance may have trouble merging the Southern-bred culture of SunHealth members with the teaching hospitals of Premier and the integrated community hospital systems of AmHS.
Patrick Carroll, a consultant in Cypress, Calif., noted that 10 years after Baxter International merged with American Hospital Supply, the executives couldn't overcome cultural hurdles. Last week, Baxter said it was splitting the company in two (See story, p. 2).
However, he noted that purchasing groups are concerned about survival in a consolidating market. "We didn't need 100 different group purchasing organizations," Carroll said.
Even so, SunHealth hospitals seemed to be reacting favorably. "It gives SunHealth larger buying power and a greater opportunity to share resources," said David Hitt, president of Methodist Hospitals of Dallas.